Highly paid City traders are depriving pensioners and savers of thousands of pounds through high management fees that are often hidden, according to leaked advice provided by consultants to the Treasury. The charges are spreading and are so steep that savers may find they get less back in retirement than they invested in savings accounts and pensions over their lifetimes.

If the size of the charges were to become widely known, the UK's "fragile savings culture may be permanently damaged", according to the warning presented to the Treasury last month.

The damning findings come at a time of growing anxiety that millions of Britons will not have enough money for their old age. They will also raise new questions about the prime minister's decision to veto a new EU treaty over his demands for greater protection for the City.

David Cameron has insisted that the financial sector is a vital national interest, yet the consultants brought into the Treasury claimed that the often unnecessary charges built up by traders are damaging potential economic growth.

A source who has seen the presentation told the Observer that the conclusion was fund managers had "lost sight" of their customers and that the government needed to act. The presentation suggested that the country's pensions black hole – unfunded public and private pension commitments – could be wiped out over time if costs could be reduced, a source said.

"They are so high that the industry is actually destroying value for the UK investor at least as fast as the stock market can create it," the source said. "The government's message is that you have to save for your retirement, but with the amount you will make it hardly makes it worthwhile if these costs are being taken out. And the highest cost of all are personnel costs, wages and bonuses."

Even publicly disclosed costs reveal that UK funds are in most cases more expensive to invest in than funds in France, Germany and the US, it is claimed.

Michelle Mitchell, charity director at Age UK, said the revelation was evidence that the government must urgently enhance protection for people who followed ministers' appeals to save for their retirement. She said: "Some parts of the pensions industry very clearly have a case to answer. In these challenging economic times it's essential that charges are as low and as transparent as possible."

The presentation revealed how savings and pension pots were being chipped away as they were moved around by traders. A simple stocks and shares Isa can be top-sliced up to 16 times as it is traded around, it was claimed.

And while this practice and the costs were not noticeable when the market was on the up, the economic downturn was highlighting how much was being taken.

The average equity fund manager makes explicit that they are charging about 1.5% a year of the sum invested for their services, but additional hidden expenses average 0.3% a year and trading costs cut a further 1.4% off an investment. And the situation is getting worse, according to the analysis, which found that charges had increased by 9% in the last decade. The presentation added: "If the trend of diminishing returns and increasing costs continues we could soon expect negative returns on average."

During the presentation, which was later shared with the Department for Work and Pensions, the point was illustrated by the example of a saver who made £70,000 in contributions between 1994 and 2009, only to see the £46,000 in profit from the rise in the value of the FTSE 100 being consumed in its entirety by the financial services industry.

The experts behind the advice, Dr Christopher Sier, a former consultant to investment managers, and David Norman, formerly chief executive of Credit Suisse Asset Management (UK), revealed that the £2.1 trillion assets under management in the UK attract a cost of £67.2bn a year – or the equivalent of 3.2% – with the greatest cost being wages and bonuses for traders and fund managers.

The 14-slide power-point presentation concluded that the industry needs to be more transparent so that savers could effectively shop around and the government should act to make it safe and wise to save.

Sier declined to comment on his conversations with the government when he was approached last week. "What the Treasury said to me and what I said to the Treasury I will leave to the presentation, because you have got hold of that," he said.

Gareth Thomas, the Labour MP for Harrow West, said he feared that the government was reluctant to clamp down on the City's extravagant charges and practices. He said: "Dithering, out-of-touch ministers don't seem to understand how high the stakes are, or have the will to act. If pension charges were brought down by even a small percentage millions even billions more would end up in people's pension pots helping the next generation of pensioners and the communities they live in to have a safer, more secure future."

Tomorrow George Osborne, the chancellor of the exchequer, will give his formal response to the Vickers report on future regulation of the banks. He is expected to welcome its findings, including the recommendation of ring-fencing high street banking from investment banking services, but with the latest consultation and the preparation of a white paper expected to take several months, bankers are likely to launch fresh attempts to get the government to change some of the recommendations.